peter geelenCEO CPM PARTNERS
Integralperformancemanagement: locating the
missing link
in the process
You are in complete control of your company. There is a common
purpose. Everyone is aware of the strategic objectives. All daily
activities support these objectives. Employees are motivated to go
the extra mile. Management information offers insight into how well the
objectives have been achieved. Information and communication technology
ensure that data is always available. Only projects that contribute to your
objectives have been launched. You know perfectly well what is happening
in your company. You can act quickly when things change in your business.
For many companies this is a Utopian dream, so they introduce
performance management. Objectives and performance indicators are
defined. Derivative objectives and performance indicators are drawn up
and incorporated at lower levels. But does all this actually grant you a more
powerful grip on your company? How well are you able to work with this
new management information? You may consider making it bonus-related,
thus motivating employees to meet the targets. Then you ask yourself once
more: “Have I gained more control over the company’s performance?”
performance management
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ABSTRACT. Performance management has reallytaken off over the last few years. New methods ofmanagement, like the balanced scorecard or TQMmodels, have made a positive contribution to this.There is more and more scientific proof thatorganisations with proper performance managementsystems outperform organisations without it.However, implementing performance management isnot an easy job, and we still see many failures. Thesefailures are mainly due to a lack of acceptance andthe missing link to primary processes. Integralperformance management (iPM) might be the rightanswer to overcome these failures.
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Performance management has really taken off over the
last few years. New methods of management have made a
positive contribution to this, such as the European
Foundation for Quality Management (EFQM, comparable
with Malcolm Baldridge in America and Deming in Japan),
value-based management, intellectual capital management
and the balanced scorecard. Their development has
reached a stage where new labels are attached to
performance management. Thus it is that business
performance management, strategic performance
management, enterprise performance management and
corporate performance management have all become
widely known concepts.
Why does performance management generate so much
attention? The answer is clear. The context within which
companies operate has become more complex and dynamic.
Companies must anticipate these changes to survive.
Organisations unable to anticipate the changes will be
punished relentlessly by customers, competitors and
shareholders – not to mention the government, for with
their laws and rules of conduct they expect companies to be
in control of their activities.
Yet, in many companies, performance management has
not reached the level where changes within the business
environment can be anticipated quickly and adequately.
Most companies are still using management control
structures devised for an era in which thinking was
calendar-focused and when it was all about using optimised
fixed assets. In this archaic system, the budget is the anchor
and is focused on tangibles, ie on the company’s defined
assets. It stresses cost reduction and the efficient use of
both people, funds and other resources. The budget
functions as a financial straitjacket, and not as a means to
monitor and implement a strategy, because there is little
relationship with that strategy. A budget, moreover, is also
the basis for management reporting and reward.
Management reporting will thus be far too financial in
focus, and typically short-term in outlook.
Companies are beginning to reach for new methods to
break this cycle. Performance management processes are
also scrutinised. Rolling forecasts or beyond-budgeting
principles are implemented. Planning and review processes
are brought more into line. Many companies choose one or
more methods to eliminate the shortcomings. Ten years of
research by Bain & Company across 6 000 companies
worldwide shows the average company applying 16
methods or tools. The most popular methods help to
formulate the strategy more sharply during the strategy
process, contributing to the realisation of growth objectives.
Exhibit 1 lists the most popular methods.
The same research also examines people’s satisfaction
about the various methods (see Exhibit 2). What is striking
is that all methods in this table have a score that is 3,45 or
higher on a scale of 1-5. What is also striking is that the
degree of satisfaction with regard to performance
management-related methods, like strategic planning, pay-
for-performance, balanced scorecard and value-based
management (EVA analysis) is more than average.
Despite these fine satisfaction scores, the question
remains whether the results of performance management
live up to expectations, namely, a better execution of the
strategy through achieving strategic objectives. Companies
invest substantial sums in performance management, but
will they yield the required control or performance
improvements? And does all this pay off? Actual practice
shows this is not often considered. The performance
management business case is often qualitative, especially
when it comes to improving effectiveness.
Companies with good performance management
systems outperform companies without it – this is bolstered
performance management
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c o n v e r g e n c e v o l 7 n o 1
Exhibit 1: Methods applied
(So
urce
: Ba
in &
Co
mp
an
y)
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performance management
by growing scientific proof. But do these companies get
enough from their performance management system? The
answer is clearly “no”. Despite the fine satisfaction figures
from the Bain & Company study on the balanced scorecard,
we all know much can still go wrong. Translating strategic
objectives into performance indicators is quite an exercise
in itself. Adopting a performance management
methodology, like BSC or EFQM, within the entire company
is an even bigger challenge – one often beset with obstacles,
even failures.
The main reasons for these failures are acceptance and
processes. Projects fail because management is not
convinced of the benefits of the new working methods.
People are uncomfortable about the new key performance
indicator (KPI) list. The KPI list is also intimidating (too
many performance indicators), too remote or too difficult to
measure. So the degree of acceptance is low and
management will revert to its former behaviour: the
financial report.
By defining performance indicators, many companies
believe they can bridge the gap between strategy and
execution, ie between thinking and doing. Yet more than
this is necessary to manage the company.
Strategic objectives are translated into performance
indicators (possibly via a stepping stone of success factors).
We define clear targets for these performance indicators
and we link performance-linked pay to performance
indicators. Points of action are defined to bridge the gap
between current performance and targets.
Performance indicators are included in the planning
and budgeting process, so that these processes are drawn
within the strategy context. Agreements can be made to
harmonise the top-down strategy and the bottom-up
planning processes. Agreements on action points are
carried out and forecasts are made, depending on market
dynamics, to enable timely change anticipation.
Performances are reviewed systematically. A business
intelligence (BI) environment also enables management to
analyse performance indicator details from a number of
angles (dimensions), directly from their desktop computer
or mobile phone. Analysis results are kept and serve as a
foundation for future improvement.
Companies have been attempting to implement such
improvements in recent years. The balanced scorecard,
value-based management and the EFQM model are
embraced, and staff work hard at improving and integrating
the planning and budgeting processes. These improvements
are certainly a step in the right direction – but something is
still lacking, namely processes.
The management process may currently be in order, but
the link with primary processes has only been implicitly
arranged, through performance indicators. Despite the
EFQM model and the balanced scorecard, devoting
attention to processes, there is only an indirect or implicit
primary process link. The EFQM model thus needs self-
assessment to operate in “processes”, resulting in a radar
score and an improvement plan. The balanced scorecard is
asked to define process-related improvement objectives,
needed to realise the customer-perspective objectives.
But what does an objective like “improving delivery
reliability” tell us about the delivery process itself? The
balanced scorecard defines how to measure the success
of the objective well. The desired performance
improvements are also clear. However, what is not clear is
the way the delivery process itself looks, and how the
expected performance improvement can be achieved. The
performance indicator is the guideline. It is the same
performance indicator (and objective) that has a guiding
role when cascading the balanced scorecard to lower
echelons. This is not easy to do, because functionally-
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Exhibit 2: Satisfaction about method used
(So
urce
: Ba
in &
Co
mp
an
y)
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orientated departments make their own interpretation of
the objective and performance indicator (see example in
Box 1).
Locating the real problems, like waiting-times,
bottlenecks, etc, cannot be deduced from this. Where the
balanced scorecard and the EFQM model end, the company
will have to face another challenge: that of processes,
primary processes. This is, after all, where money is made.
Processes can be improved by the company itself – this is
where influence can be exercised.
Performance management methods will face another
challenge: making explicit the link between performance
management, primary processes and improvement
potential in those very processes. Only then will you have
control over your company, whose performance will
continue to improve.
Performance management methods have to make
another step, linking it explicitly with primary processes.
This should be a method that goes beyond creating a list of
performance indicators and involves all employees, making
use of their brainpower. It should be a method of which the
outcome is accepted and which also reaches the shop floor.
It should also be a method that enables continuous
improvement. That method is now available and is called
integral performance management (iPM).
THE iPM MODEL. The central idea behind iPM is direct
improvement of company performance by an explicit link
between strategic objectives with primary processes and to
create a culture of continuous improvement. Five steps
have to be carried out to implement iPM (see Exhibit 3).
Going through these five steps brings you your strategic
objectives (no more than four to seven), linked with your
relevant processes. These processes will be decomposed,
instead of cascading through the functional hierarchy. This
bridges the gap between processes and performance
indicators on a high organisational and abstraction level
with daily operations. iPM brings performance
management to the level where influence can be largest: the
operational processes and your employees. iPM will result
in the following advantages:
� iPM links processes to customer needs and,
consequently, is customer-focused.
� iPM creates focus in the organisation – firstly, by
reducing the number of objectives and, secondly, by
focusing on the relevant processes.
� Employees are involved from the start, which increases
acceptance. They determine the best performance
indicators and improvement initiatives to measure the
success and improve the performance of their job.
� Process performance indicators will be of a more direct
nature and, consequently, will be measurable more
frequently. Frequencies of performance (and
operational) indicators can vary from minutes to weeks
or months.
� iPM eliminates functional boundary or stovepipe
thinking; stating priorities (which processes first) is
also possible.
� Initiative management offers a structural approach for
process improvement, which allows you to overview and
control your initiatives and ensures that finances are
only channelled to those initiatives that contribute to
strategic objectives.
� The process orientation of iPM lowers the barrier for an
organisation to introduce activity-based management
and it provides a basis that is also required for
corporate governance or quality systems.
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BOX 1:: Example:: Imagine a technical installation and services company (egheating systems) has formulated a customer objective on the scorecard, ensuringthat the response to a customer’s machinery breakdown is quick and effective.The objective’s success is determined through a KPI response time. This KPImeasures the average time needed to solve a breakdown. There is increasingelectronic circuitry in machinery, so that software patches are often needed tosolve breakdown incidents – software patches which, depending on theproblem’s complexity, have to be supplied by the software department. Theservice unit is responsible for maintaining heating systems. The softwaredepartment is part of the development unit. When cascading this KPI, atranslation will have to be made to the service scorecard as well as to the softwaredevelopment department scorecard. Whether the same (type of) KPI appears onboth scorecards, whether they will be equally effective or whether the ambitionswhen setting targets are in line depends completely on the quality of thecascading process. Within the iPM model the only thing to be worked out is theescalation process, in which both departments are involved at the same time, sothat alignment of performance indicators or targets is not subsequently necessary.
Exhibit 3: Five steps of the iPM model
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